Milford Industries manufactures a popular interactive stuffed animal for children that require two computer chips inside each toy. Milford Industries pays $1 for each computer chip. To help to guard against stockouts of the computer chip, Milford Industries has a policy that states that the ending inventory of computer chips should be at least 30% of the following month's production needs. The production schedule for the first four months of the year is as follows:
Stuffed animals to be produced
January ................................................................................. 5,200
February ............................................................................... 4,700
March ................................................................................... 4,000
April ...................................................................................... 4,600
Requirement
Prepare a direct materials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget.